MNCs and ASEAN Development in the 1980s 9789814376884

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Proceedings of a Conference on

MNCs and ASEAN Development in the 1980s

organized by the Institute of Southeast Asian Studies with the assistance of the Asia Foundation, Bank of America, BP, Esso, IBM and Mobil 7 · 10 September 1980 Singapore

Edited by Arun Senkuttuvan

INSTITUTE OF SOUTHEAST ASIAN STUDIES

ISBN 9971-902-30-3 Published in 1981 by Institute of Southeast Asian Studies Heng Mui Keng Terrace, Pasir Panjang Singapore 0511 ©Institute of Southeast Asian Studies

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MNCs and ASEAN Development in the 1980s

Contents

Foreword

vu

Summary Report Arun Senkuttuvan The Background Arun Senkuttuvan

9

Opening Address 29 Tony Tan Keng Yam

CONFERENCE PAPERS Asian Development in the 1980s: Signals and Suggestions Stanley Katz Government-MNC Relations Raymond Vemon

37

47

Government Investment Priorities A mnuay Viravan

59

Financing ASEAN's Development: The Availability of Funds and Security of Investment 69 Eric W. Hayden Investment: What? How? Coen Ramaer

81

Multinational Corporations and the Developing Societies A bdul Manan bin Othman

91

The International Financial Environment for ASEAN Investments Philip E. Coldwell Energy Requirements in the 1980s Ray M. Ingram

101

109

Multinational Corporations and the Transfer of Technology A.R. Soehoed

133

Problems between Multinational Corporations and Host Countries Efren /. Plana

143

WORKSHOPS 1:

11:

Ill:

IV:

Government Investment Priorities and Security of Investments 155 Chairman: Ngiam Tong Dow Availability of Investment Funds: Role of International Banking in Meeting ASEAN' s Industrialization and Economic Needs in the 1980s 161 Chairman: Philzp E. Coldwell Energy Requirements and Developments in the 1980s and the Respective Roles of Government and Foreign Investors in the Matter 163 Chairman: George B. Hargens Problems of Technology Transfer and of Labour and Management Training 165 Chairman: Coen Ramaer

Summary Of Main Findings Raymond Vernon

169

Appendices 179 A. Indonesia 180 B. Malaysia: Long-term Perspective C. The Philippines 182 D. Singapore 183 E. Macro Indicators for Indonesia, Malaysia, the Philippines and Thailand in 1985 189 191 F. Special Lecture by Mr. Lee Kuan Yew G. World Bank Loans may help Asia tap Energy Resources 205 Programme 209 212 List of Participants Conference Planning Committee

217

Foreword

The Institute of Southeast Asian Studies, in the course of its research and other professional activities, has always felt that, whatever the controversies and pros and cons about the whole question of multinational or transnational corporations and their operations in the region, they, together with the host governments and the local business groups, have key roles to play in the development of Southeast Asia. Also, differences and difficulties notwithstanding, contacts between MNCs and ASEAN governments and societies are likely to expand over a wide spectrum of fronts in the future, irrespective of the national origins of the individual MNCs concerned. At the same time, it would appear too, that whilst there is a shortage of information about the interfaces and interactions between and amongst the foregoing principal actors in the development process - that is, the MNCs. the ASEAN governments and the local industrialists - there is a glut of often emotionally charged misconceptions. In short, there is a clear and discernible communication gap if you like. Conscious of such a state of affairs, and also of the need for better and more effective working relations between MNCs and local interests (and aspirations), the Institute, in conjunction with the Centre for Strategic and International Studies, Jakarta, organized a closed-door seminar on "ASEAN and the Multinationals" in Singapore in March 1977. Participation was limited to a small select group of senior ASEAN government officials, representatives of MNCs, and prominent local industrialists and businessmen. It was the consensus of that gathering that any significant economic development of the ASEAN countries requires capital investment as it is only by providing capital investment to labour that significant increased productivity can be achieved. Secondly, it was generally accepted that the major sources of capital are governmental agencies and private companies which are national or multinational. Thirdly. the responsibilities and criteria for making investment differ substantially between government bodies and private enterprises. These differences, criteria, objectives and responsibilities must be reconciled if foreign investment is to be attracted. Fourthly, such reconciliation can best result from understanding the problems of the various elements involved; and finally, this understanding can only be achieved through meaningful and frank discussion and dialogue on a continuing basis between representatives of the MNCs and the host governments, and local entrepreneurs and businessmen. Towards this end, and as part of a concrete follow-up to consolidate the gains made, the Institute of Southeast Asian Studies, together with other like-minded institutions, was asked to undertake studies of specific problems involved in MNC- host country relations, that is, relations as reflected in the Southeast Asian context. Additionally, it was proposed that a conference be organized around the theme of MNCs and ASEAN Development in the 1980s.

Whilst details of a meaningful research programme to be based at the Institute are still being worked out, the idea of a conference was acted upon in September 1980, and the proceedings were processed for publication in the form of the work that follows. The key issues discussed during the conference are outlined in the Summary Report. I would just add that the ASEAN countries have only recently begun, by design or otherwise, to participate in international meetings as a body. This in turn is beginning to have all kinds of beneficial spin-offs, as the members come to know one another, and to understand each other's position better. ASEAN is also beginning to approach third parties as a collective organization; for example, in negotiations with individual countries like Japan, Australia and the United States. They are seeing that there is more to gain if they act in unison. It would appear only natural that these gains develop a momentum of their own and in time to come have beneficial ramifications for other aspects of the region's life too. We should not, however, on the basis of such developments, jump to the conclusion that a removal of customs barriers and the emergence of an ASEAN free trade area or a common market is around the corner. This will be a long process. On the other hand, ASEAN does have political stability and the possibilities of gains from ASEAN acting in unison internationally. In short, the possibilities and opportunities for those interested are there in ASEAN. Within this context, there is no doubt that as long as the economies of ASEAN are open, there will be the presence of outside capital. That this capital will interact both with the host governments and with local industrialists is an established fact. Given this, are there ways of studying more closely the interactions and interfaces amongst and between these three factors so that such contacts may be made more effective? Needless to say, there is little sense in wasting energy or investment capital in acrimonious quarrels or misunderstandings. The fact that so many cabinet ministers and other governmental policy makers, informed academics and prominent businessmen took four days off to participate in the conference is an indication of their concern with the role of multinationals in the region. As is usual with major conferences of this nature, we could not have managed this meeting without the generous support and encouragement of a number of individuals and private organizations. We are particularly grateful to our eo-organizers - the Asia Foundation, Bank of America, BP, Esso, IBM and Mobil. We are also grateful to the Honourable Dr. Tony Tan Keng Yam, the then Minister of Education and currently Minister for Trade and Industry, Singapore, for declaring the conference open. We would also like to thank all the participants and observers for their valuable contributions. In wishing them and the publication that follows all the best, it is clearly understood that responsibility for facts and opinions expressed in the proceedings and reports rests exclusively with the individual authors concerned.

Kernial S. Sandhu Director Institute of Southeast Asian Studies

Summary Report Arun Senkuttuvan

Benign: that is probably the best description of the atmosphere in which multinational corporations and the governments of ASEAN can expect to arrange their relations in the 1980s. That was also the general tone of the exchanges in the conference, which was perhaps also remarkable for the absence of rancour and recriminations which so often characterize conferences of this nature. But, as Professor Raymond Vernon who acted as "the in-house disturber of conventional wisdom" warned, that is about the only generalization one may make about the environment the multinational enterprises can expect in Indonesia, Malaysia, the Philippines, Singapore and Thailand in the coming decade. For, the fundamental contradiction between the transnational enterprise as an institution and the concept of nation states remains unresolved. A nation state be it a home or host country - will always expect a multinational company to optimize its operations nationally, while the company with its obligation to maximize profits globally cannot at all times optimize in each and every country it operates in. Its response in one country may involve adjustments in another. If, for example, it exports more from one, it may have to export less from another. Save for this element of incompatibility, compromises can be made, and have been and will continue to be made - often to the satisfaction of both multinational enterprises and governments. Experience in the five countries has been generally good and encouraging for new ventures to be launched and old ones to be expanded. Several speakers, especially the ASEAN Ministers, dwelt upon the many factors present in the region which favoured foreign investment. But the external environment against which multinationals and the governments of ASEAN will have to arrange their relations was considered to be far from favourable. Observations in this regard were indeed full of dire warnings. The 1980s could well prove to be a turbulent decade. It was asserted repeatedly that we ought to anticipate slower growth throughout the world and that it was going to be tough on the five economies which were more export-oriented than most. Some speakers felt the slower growth would be made worse for the five countries by a rise of protectionism in the major industrial countries. Professor Vernon was the least pessimistic on this score. He did not believe that protectionism would be such a crippling threat. He said the 1980s would not be iike the 1930s as there were too many vested interests that had thrived on an open competitive world and they would vigorously defend that world.

2

MNCsand ASEAN Development in the 1980s

Another major problem anticipated was shortage of capital. Dr. S. Stanley Katz of the Asian Development Bank was the first to raise the storm signals. He said that although the outlook for private investment in the ASEAN countries remained favourable, capital inflow was likely to be small compared to overall transfer requirements. The shortfall would dampen agricultural and industrial production and productivity from rising to levels that could sustain past growth rates. Dr. Eric W. Hay den of the Bank of America, however, felt that the magnitude of the problem was not as acute for the ASEAN nations as it might be for other parts of the world. He pointed out that there was no shortage of visiting foreign bankers who regularly reasserted that, of all areas of the world, the ASEAN countries had the most favourable near-term as well as long-term growth prospects. He underscored that assertion by pointing to a number of favourable indicators. He said it was not too optimistic to suggest that the ASEAN states collectively would not, for the foreseeable future, face any problems in raising syndicated loans in the international markets. Nevertheless, he reminded the five members that they should not take this statement too complacently. They would be well-advised to spare no efforts to consider additional sources of funds for their numerous and ambitious development projects and programmes. This would entail fostering alternative funding vehicles as well as private foreign direct investment and technology transfer. Several recent events provided encouraging evidence that the need to develop alternative funding sources was well appreciated within ASEAN circles: 1. The decision of the private and state bankers to establish the ASEAN Finance Corporation (AFC) with headquarters in Singapore. Capitalized at about US$25 million, AFC is designed to provide capital and credit to pioneering industrial ventures which are regional in scope and where traditional financial sources are reluctant to become involved. 2. The ASEAN-Japan Industrial Development Corporation (AJIDC), a joint stock company operating as a satellite of AFC. While details remain to be ironed out, the organization reportedly will provide both equity and loan funds as well as underwrite and guarantee development projects contributing to "expansion and economic interchange within the ASEAN region and between ASEAN and Japan". This will presumably include the industrial comp!ementation schemes and other projects involving firms from two or more ASEAN members in production, marketing, and finance. The focus will be on small- and medium-scale projects which will encourage cooperation among the ASEAN states and those which might otherwise find difficulty in obtaining funds in view of their long gestation periods. Significantly for ASEAN, the AJIDC, which is a purely private sector organization, will tap the substantial financial resources of the Japanese Government and its agencies. 3. The recent decision by the ASEAN Banking Council to implement tht> longdiscussed ASEAN bankers acceptance market. The bankers acceptance market in the U .S. is successful because the Federal Reserve System stands as the buyer of last resort for the paper. Reportedly, the central banks of the

Summary Report

3

various ASEAN nations are willing to open their rediscount windows to local acceptances, thereby ensuring a viable secondary market. This would help expand regional trade - and, ultimately, investment - as bankers would be able to re-finance the trade bills they have assumed and, in the process, obtain an additional source of funds. Problems of Capital Inflows Both Dr. Hayden and Dr. Katz also explained the overall problem of "petrodollar recycling" and referred to the various proposals being made on how the commercial banks might be assisted in their recycling task. Many of the proposals focus on increased roles for the International Monetary Fund, the World Bank and regional institutions like the ADB. Other proposals look to greater participation by the Organization of Petroleum Exporting Countries (OPEC) in recycling - whether through expanded bilateral assistance or through loans to multilateral institutions for on-lending to the developing world. They reported that these and other such proposals remained unaccepted or unimplemented. There was a fear that the problem might lead to a breakdown in the international banking system. Professor Vernon was confident that though such a breakdown, if and when it occurs, might be painful, the governments would be there to put the basket under the banks. A possibility that seemed more real was an abrupt and brutal disruption in supplies of oil from the Middle East some time during the 1980s. While we had to continue to live under the shadow of such a threat and while the ASEAN governments could do little to remove that threat, the world energy outlook was thought to be not entirely gloomy. As Mr. Ray M. Ingram, of Esso Eastern, who made the presentation on energy requirements in the 1980s, put it, the supply-demand outlook remains tight but manageable. His conclusion was: despite economic growth rates being lower than in the past and despite declining energy/GNP ratios, demand for energy will continue to increase. By the year 2000, world energy demand could be about two-thirds higher than at present. Oil consumption will probably continue to exceed discoveries over the next twenty years. Conventional oil production can be expected to plateau around the turn of the century, and costs of new oil supplies will be higher, even after allowing for inflation. Other expensive energy sources will be required to meet projected world energy demand, reinforcing the rise in real energy costs. The transition to a new energy supply environment will accelerate over the next two decades. Coal and nuclear energy will play increasingly important roles, and synthetics will become significant in the years beyond 1990. In all sectors of the economy, greater conservation and greater efficiency in the use of energy can be expected. This transition can be achieved. Some of the required technology is available now and new processes are under active development. Development of energy sources in a timely fashion will satisfy the requirements for expanding energy supplies without seriously impinging on economic growth. Access to the required resources, support for the accelerated development of synthetic fuels, and government policies, especially those concerned with environmental controls, will all affect the pace of the transition

4

MNCsand ASEAN Development in the 1980s

and its economic and social consequences. While the above features of the external environment might be disconcerting for everybody in the region, they need not place multinational enterprises in a particularly disadvantageous position vis-a·vis governments in the area. If, for instance, exporting gets difficult it is possible that the governments might exert pressure on multinationals which are already established here to export more. But, on the other hand, capital and technology might become short at about the same time. Then, enterprises that have yet to come into the region or those in a position to add product lines to their earlier ones will be in an improved bargaining position by reason of the fact that they will be regarded as the potential sources of scarce resources. So the pitch of the relationship will be somewhat higher, entailing a few more conflicts, but not necessarily to the disadvantage of multinational enterprises. Workshop Discussions The workshops which followed the plenary sessions of the conference focused on some of the problems or tensions that might arise in the future as well as some of the likely solutions. The first workshop considered the ASEAN governments' priorities which had been described in some detail by the ASEAN Ministers in the earlier plenary sessions or were publicized by their investment promotion agencies. it was pointed out that all five governments appeared to have very similar priori· ties and were competing with each other for the same investments. But on closer examination, one could see that though each had a kind of omnibus list, the emphases varied between them and also between one period and another. Singapore, for example, had tried to promote an integrated steel mill in the sixties. Now it knows it would be much more economical to concentrate on certain special steels (to make ball- bearings, for instance) rather than produce the sponge iron itst>lf. It had promoted local assembly of cars only to find out that Singaporeans ended up paying more for locally assembled ones than they would have had to pay if the same models were imported. It would be more profitable to concentrate on the production of certain components or parts which could be sold to assemblies elsewhere. As for differences between countries, it was pointed out that Indonesia was going for heavy resource-based industries and agribusiness whereas Singapore was seeking for high technology capital-intensive industries. But often when governments decided the priorities unilaterally and persisted on achieving them, they ran into difficulties - protecting and subsidizing the promoted industries over a long period of time. If the private businessmen were allowed to make decisions on the basis of economies of scale and locality, such problems could be minimized. However, where governments had promoted certain industries, they had to live with them; for, once the word was given - either in the form of fiscal incentives or tariff protection - they must stick to it. Not to do so would undermine their credibility. The ASEAN governments by and large realize this. Singapore, for example, stood by its promise not to allow other camera manufacturers into Singapore for ten years even though it realized very quickly that the first one that

Summary Report

5

was invited on the promise was not able to compete as well internationally as the Japanese manufacturers who wanted to come in later. That protected industries do not survive in the long run is rcali11'!l sooner in industries where the producers have to compete internationally to sell their pro· ducts than in industries where the products only serve as substitutes for imports. Even when it is realized that protection is costing the country as a whole too much, the protection cannot be easily dismantled because those who are enjoying such protection never want to give up what they already have. Multinational corporations which have gone into import substitution, and local industrialists who are not internationally competitive, are the biggest stumbling blocks to the lifting of such protection. So multinationals, as well as local businessmen, should perhaps stop seeking such protection when they invest. There was consensus that all the ASEAN countries satisfied, though in slightly varying degrees, the first requirement for foreign investment - political stability. The second criterion was really one of cost advantages. Multinationals will go where the supplies - materials and manpower - can be obtained most cheaply and/ or where the products can be sold most profitably. There is no profit in equilibrium. The ASEAN countries while having certain common characteristics - like being generally free market economies with good growth records and potential - offered a variety of advantages for different industries. So, without the govern· ments resorting to nurturing industries through protectionism, there might be enough industries for everyone to specialize. Again, the specialization would vary from time to time, and bring about their own complementation or integration. What is happening in the electronics industry was cited as an example. Companies were already making TV parts in Singapore and assembling them in Malaysia. This has happened without any formal agreements between governments. The inherent nature of business seems to be to complement or to integrate. As for formal complementarity agreements between governments, the track record is rather poor. The Andean Pact is an example.

Clear Directions So long as governments do not interfere - erect tariffs or other barriers prospects for the emergence of a regional market can only improve. The fact that this has been recognized by the ASEAN governments was evident from two recent decisions made by them: (1) they have agreed not to erect new barriers; (2) they have decided to remove existing ones gradually. The speed with which the removal of barriers or the introduction of tariff preferences within ASEAN was taking place might appear extremely slow. But a definite beginning has been made, and the direction is clear. It was also pointed out that if the existing import duties levied by the ASEAN governments are closely examined, it would be clear that most were revenuegenerating, which means that the products affected are not really closed to local manufacture by new investors. The economies are largely open.

6

MNCsand ASEAN Development in the 1980s

What should worry the multinationals and the ASEAN governments more is the spectre of protectionism in the industrialized markets. The strains of stagflation and the increasing oil prices might make the governments of the industrial countries protect the existing industries by closing their markets. Can the ASEAN countries look to multinationals to persuade their own governments against such moves? General Motors might appreciate the cost advantages of sourcing different parts from different places and assembling a world car, but what guarantee is there of the U .S. Government accepting the logic of the free market? Investors looking for security, it was felt, were no longer looking for investment guarantee agreements. Such treaties helped in the sixties and early seventies. But, what seems more important now is that agreed ground rules are not changed. "Rules" often means privileges and restrictions. The general direction in ASEAN is already clear: fewer privileges and no new restrictions. The governments' stand on the joint ASEAN fertilizer project is an example: the prices must be internationally competitive. The others will not subsidize it merely because it is an ASEAN project. But, internationally, the direction might be different; it might be towards more complicated bilateral and multilateral agreements. The need to put up a common front - out of a common fear - in such difficult negotiations might indeed help the ASEAN countries to come closer together. Another workshop considered energy requirements and development in the 1980s and the respective roles of governments and foreign investors in the matter. A consensus was reached that ASEAN does face the prospect of an energy shortage, particularly in petroleum, and the long-term solution lies in the development of alternative sources and in conservation. It was recognized th':n within ASEAN there are the "haves" (energy producers) and "have-nots" (nonenergy producers). How the needs of the latter group were to be met within the concept of ASEAN was not recondled. On the role of governments, it recommended that everything should be done to increase supply and to formulate realistic national energy policies based on economic rather than political considerations. Such policies should place emphasis on the need for energy conservation in the broadest sense of the term, and should recognize that the efficient use of energy is a positive aspect of energy conservation. On the role of foreign investors, it concluded that it would be some time before we could expect to see a recycling of OPEC funds to this region. In the meantime there was a need for a consortium of international banks to provide funds necessary for the implementation of energy projects in ASEAN.

Issues for Research Another workshop focused on questions to be answered in further research to be undertaken by the Institute in cooperation with the ASEAN Chamber of Commerce and Industry, governments, local enterprises and multinationals. The suggested areas of study are:

Summary Report

7

1. Definition of know-how and methods of know-how transfer. Alternative channels of know-how transfer were identified as (a) academic and other non-profit institutions; (b) international institutions, such as the U .N.; (c) bilateral assistance programmes; and (d) multinational enterprises. Comparative advantages and disadvantages of these alternative channels and possible specialization amongst them. What would be the best channel in a concrete case? 2. Technology transfer problems in joint ventures in comparison with other models like subsidiaries. The research could deal with, for example, problem areas from the standpoint of multinationals, the local partner and host governments, including issues such as speed, effectiveness of transfer, transfer pricing, and tax implications. What conditions - for example, the attitudes of the supply partner - are necessary for a successful transfer of technology? What are the attitudes of the local partners towards the multinationals, particularly with regard to the impact of the transfer of technology on local culture? 3. Identification of the important factors that restrict the transfer of technology, such as limitations on payments for transfer of technology, for example, due to foreign exchange controls or immigration constraints; and identification of the incentives needed to overcome these obstacles for the transfer of technology, such as securing protection of industrial and intellectual property, etc. 4. Cost of know-how. To what extent is it possible to calculate the cost of knowhow? Could a standard method in calculating the cost of transfer to technology be devised? 5. Flow of know-how. Under what conditions is "single shot" know-how practical, and under what conditions would a continuous transfer of know-how be preferred? 6. Drafting of contracts. What questions should parties ask themselves when drawing up a contract? For example, what is the purpose of the technology transfer? To whom should it be directed and in what type of industry? What training targets should be set? 7. Training needs. What kind of training is most needed in ASEAN in the 1980s - management or technical, for medium enterprises or small, and for which sectors of business? How could such training be organized in the most productive way - by governments in cooperation with bilateral and multilateral assistance or by the business community in cooperation with multinationals and with finance from national and international assistance? What training programmes are feasible at the ASEAN level?

Recommendation The participants recommended that the results of the study should be addressed primarily to the ASEAN business community, and, secondly, to the governments. They also felt that, if the host governments and the multinationals are willing to make a few adjustments here and there, the overall prospects for their relations within ASEAN would be bright.

The Background Arun Senkuttuvan Almost everything that has happened in Southeast Asia since March 1977 - the last time the Institute of Southeast Asian Studies and its friends looked at the relationships between multinational corporations and Indonesia, Malaysia, the Philippines, Singapore and Thailand - seems to augur well for international business enterprise in the region. Firstly, the economies of the five members of the Association of Southeast Asian Nations have done extremely well. They grew at rates of between 5.8% and 9.3% in the past three years which were described in the world markets as years of uncertainty. Their performance (tables l and 2) was remarkable not only for registering faster growth rates than the 0 ECD 1 countries but also for confirming the belief that they have become more stable than most other economies in the world. An TABLE 1 Real Gross Domestic Product of ASEAN Countries In Billions of 1975 Currency

Indonesia (Rupiahs) Malaysia (Dollars) Philippines (Pesos) Singapore (Dollars) Thailand (Baht)

1976

1977

1978

13,513

14,515

15,561

24.8

26.7

28.7

31.1

121.2

128.6

136.7

144.6

14.37 326.7

15.51 350.7

16.85 391.8

1979

18.41 418.1

SouRCE: International Monetary Fund, International Financial Statistics

Organization for Economic Cooperation and Development whose members are Australia, Austria, Belgium, Canada, Denmark, Finland, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.

MNCs and ASEAN Development in the 1980s

10

TABLE 2 Real GNP/GDP Growth in Selected Countries, 1976-1979

1976

1977

1978

1979p

Percentage Change Over Previous Year ASEAN Indonesia Malaysia Philippines Singapore Thailand

6.9 11.1 6.7 7.2 8.4

7.4 7.6 6.2 7.8 6.9

7.2 7.4 5.9 8.6 8.7

6.5 8.1 5.8 9.3 6.7

Total OECD

5.2

3.7

3.9

3\t4

United States Japan West Germany France United Kingdom Italy Canada

5.8 6.0 5.6 5.6 2.6 5.6 5.8

4.9 5.4 2.6 3.0 2.0 2.0 2.7

4.4 5.6 3.5 3.3 3.3 2.6 3.4

2.0 6.0 4\t4 3

16.7 15.1 11.5

11.9 10.3 8.5

10.0 11.6 12.8

12.0 7.1 8.0

5~

4 2M

Selected Northeast Asian Countries Hong Kong South Korea Taiwan

SOURCE: OECD Economic Outlook, December 1979. Official Country Reports.

indicator of economic instability, the coefficient of variation of the real Gross National Product growth rate, calculated for three periods - the 1960s, the 1970s and the whole of the sixties and seventies - shows how resilient they have been in comparison with the economies of Japan, South Korea, Taiwan and the United States (table 3 and charts I and 2). The major contributors to the growth and stability in the five economies were the sectors wherein multinational corporations were most active. The main thrust came from the manufacturing sector to which most of the new foreign investment was invited, and went. Comprehensive time series of overall foreign investment are not available. Even in the case of approved or promoted investments, information is scarce on whence they came and where they went. In the early seventies, some of the governments of ASEAN used to publish detailed statistics of foreign investments showing the number of jobs they had created, the value they had added to domestic production, the foreign exchange they had saved where they had gone into import

11

The_Background TABLE 3 Fluctuations in Economic Growth Rates of ASEAN and Four Other Countries (In Local Currency)

1960s

1970s

1960s and 1970s

3.2 1.17

8.2 0.25

5.3 0.73

7.0 0.57

7.0 0.57

Indonesia

Average growth rate Coefficient of variation

Malaysia

Average growth rate Coefficient of variation

Philippines

Average growth rate Coefficient of variation

4.9 0.34

6.2 0.26

5.5 0.31

Singapore

Average growth rate Coefficient of variation

8.8 0.59

9.7 0.39

9.2 0.48

Thailand

Average growth rate Coefficient of variation

8.0 0.22

6.7 0.25

7.6 0.25

Japan

Average growth rate Coefficient of variation

11.0 0.28

6.1 0.66

8.8 0.48

U.S.A.

Average growth rate Coefficient of variation

4.1 0.37

2.7 1.18

3.5 0.70

Korea

Average growth rate Coefficient of variation

8.0 0.53

10.5 0.31

9.1 0.43

Taiwan

Average growth rate Coefficient of variation

8.5 0.21

8.5 0.53

8.5 0.38

SouRCE: International Monetary Fund, International Fz'nanczal Statistics.

substitution and the foreign exchange they earned where they were in exportoriented industries. They no longer publish such detailed figures, which is perhaps an indication of their feeling that they need not publicly justify foreign investment any more. All the same, some of the available statistics are given in tables 4 to 9. Not that foreign investment as a whole or the role of multinationals was ever a matter of great public controversy in these countries as it once was in Latin America and Europe. Despite the emotions aroused by the anti-Japanese demonstrations in Bangkok and Jakarta in 1974, there were no major public debates on the pros and cons of multinationals operating in the region. The Japanese Occupation of Indonesia was followed by a period of independence struggle and Sukarno's experiments with his own brand of socialism. During that period a few of the multinationals which were originally there found the conditions not very conducive to their return or expansion, and new entrants were not many. Otherwise, the countries of ASEAN have always been open to foreign investment, albeit in varying degrees. Their successive governments have been pro- private enterprise to a large extent, though they do interfere with free

MNCs and A SEA N Development in the 1980s

12

CHART 1 Relationship Between Average Econormc Growth Rate and Coefficient of Variation (for the whole of the 1960sand 1970s)

%10

GY = 10.1& - &2/N R"'·0.51

Taiwan

Korea • Singapore • • Japan

·-

8

• MalaySia

.

•Philippines

,.-.....,

•U.SA

o~------~--------r-------~------~0.2

0.4

08

0 6

CoeHictenl ol Variation (V)

CHART2 Relationship

Between - - Economic Growtl1 Rate and Coefflclenl of Variation

(19608 and 19708 compered)

GY

6

U.S.A.

'eO---

= 9.61

- 5.07V RJ=·0.63

--- .... --U.S.A. '70

2

0

0.2

0.4

0.6

0.8

1.0

1.2

Coefficient of Variation (VI SouRCEc IMF.Int- F1nenci81Stalilstlcs.

13

The Background TABLE4 Foreign Investment in ASEAN Countries

Investing country (%) Host country

Value of investment

Indonesia

Japan

U.S.A.

U.S. $5.3 billion (cumulative at end- 1977)

39.0

19.2

Malaysia

Malaysia $1.02 billion (outstanding at end- 1977)

23.4

Philippines

4.18 billion Pesos (outstanding at end- 1977)

Singapore

Thailand

SOURCE:

U.K.

Germany

Others

1.7

3.4

36.7

18.7

12.1

2.4

43.4

25.3

33.1

8.4

1.4

31.8

Singapore $4.15 billion ( outstanding at end- 1977)

15.3

33.0

13.7

3.1

34.9

3.49 billion Baht (outstanding at end- 1977)

34.7

15.6

5.7

2.3

41.7

JETRO, Kaigai Shijo Hakusho (White Paper on Foreign Markets), 1978;79. p.92.

TABLE 5 Foreign Investment Approvals, Indonesia

US$ million

Forestry Mining Manufacturing Textiles Chemical & rubber Construction Hotels Other Total p = preliminary

1967- 73

1974

463.3 953.7 1,145.7 550.7 198.6 49.0 116.5 415.8 3,144.0

62.3 69.0 1,124.6 398.7 231.1 26.8 80.9 166.3 1,529.1

1975

15.9 1' 160.5 31.2 61.4 10.4 21.3 51.3 1,766.6

1976

1977

1978P

1979P ]anJune

36.9 3.6 349.4 24.2 35.7 1.3 13.5 45.9 450.6

30.3 200.0 381.4 91.96 78.2 3.4 0.64 57.0 672.7

45.6 44.9 298.5 118.7 19.5 5.2 9.7

4.8

488.4

397.7 12.07 335 250

416.3

14

MNCs and A SEA N Development in the 1980s TABLE 6 Malaysia: Projects Granted Approval by Industry, 1978 and 1979

Industry

No. of Approvals

Potential Employment

Authorised Capital ($Million)

1978

1979

1978

1979

1978

Food Manufacturing

76

60

4,595

2,380

187.9

65.0

Beverages & Tobacco

4

ll

260

535

11.5

69.0

Textiles & Textiles Products

38

47

4,157

6,674

22.8

27.6

Leather & Leather Products

2

6

684

281

0.4

1.3

Wood & Wood Products

43

43

3,809

4,874

92.2

95.7

Furniture & Fixtures

10

7

1,416

238

17.0

2.8

Paper, Printing & Publishing

12

10

305

402

4.8

6.2

Chemicals & Chemical Products

33

25

1,117

1,092

42.8

38.8

2

3

8

569

5.0

702.0

Rubber Products

22

28

1,621

2,576

68.6

37.7

Plastic Products

12

25

534

1,406

12.4

21.5

Non· Metallic Products

30

36

1, 720

2,370

73.8

163.3

Basic Metal Industries

12

16

932

1,472

29.3

31.6

Fabricated Metal Products

32

44

3,455

2,238

80.7

120.2

Machinery Manufacturing

18

17

1,389

1,143

20.5

20.5

Electrical & Electronic Products

54

62

9,288

19,986

127.0

131.1

Transport Equipment

8

18

448

1,944

10.0

33.3

Scientific & Measuring Equipment

4

2

191

163

0.4

ll

16

497

1,577

11.2

23.8

5

8

466

1,655

16.6

63.5

428

484

36,892

53,575

834.9

1,654.0

Petroleum & Coal

Miscellaneous Hotels & Tourist Complexes Total

1979

0.05

15

The Background

TABLE 6 (cont'd) Loan ($Million)

Proposed Called-up Capital ($ Million) Malaysian

Total

Foreign

1978

1979

1978

1979

1978

1979

76.9

61.6

34.6

18.5

111.5

80.1

172.0

4.1

16.9

0.9

6.5

5.0

23.4

9.2

11.7

4.2

16.3

13.4

0.7

0.7

0

22.0

47.7

4.6

3.6

0.8

2.0

1978

1979

Total Proposed Capital Investment ($ Million) 1978

1979

92.2

283.5

172.3

5.8

40.0

10.8

63.4

28.0

26.4

74.8

39.8

102.8

0.7

0.7

1.7

2.8

2.4

3.5

8.9

26.6

56.6

34.6

64.1

61.2

120.7

3.4

0.3

7.0

1.1

13.2

1.0

20.2

2.1

2.5

0.4

0.6

2.4

3.1

5.0

7.6

7.4

10.7

17.5

15.5

7.4

6.0

24.9

21.5

40.0

28.4

64.9

49.9

0.8

390.9

1.6

210.7

2.4

601.6

1.5

2,001.4

3.9

2,603.0

23.5

13.1

8.6

11.3

32.1

24.4

38.3

42.9

70.4

67.3

5.1

8.9

0.7

4.6

5.8

13.5

10.4

15.8

16.2

29.3

22.8

40.4

8.0

92.1

30.8

132.5

43.5

359.0

74.3

491.5

21.3

31.1

2.1

10.1

23.4

41.2

29.7

185.2

53.1

226.4

36.0

39.5

28.0

35.6

64

75.1

101.6

115.4

165.6

190.5

8.5

7.8

3.6

6.9

12.1

14.7

1Z.5

15.1

24.6

29.8

33.9

13.9

61.4

47.9

95.3

61.8

82.0

153.3

177.3

215.1

3.0

15.2

0.5

5.7

3.5

20.9

6.5

16.9

10.0

37.8

*

0

0.7

0.1

0.7

0.1

0.8

4.5

1.5

4.6

1.9

4.5

4.5

2.8

6.4

7.3

4.0

6.6

10.4

13.9

9.6

35.9

2.6

11.1

12.2

47.0

13.2

57.3

25.4

104.3

302.4

758.6

177.8

496.0

480.2

1,254.6

642.7

3,284.3

1,122.9

4,538.9

TABLE6A

-

Malaysia: Foreign Investment in Pioneer Companies in Production as at 31st December, 1978 & 1979 (M$'000) Paid-up Capital Country of Origin Australia Bahamas Belgium Brunei Canada Denmark France Germany Holland Hong Kong India Indonesia Japan Luxembourg New Zealand Norway Philippines Singapore Sri Lanka Switzerland Taiwan Thailand United Kingdom United States of America Others Total

* Preliminary figures

Loan

0>

Total

1978

1979*

1978

1979*

1978

1979*

42,248 18,700 1, 746 259 9,525 9,801 187 27,304 2,993 102,050 10,668 415 194,594 4,408 368 7,453 21 200,380 25 10,211 1,974 2,215 168,003 117,705 4,918

42.248 18.700 1,'146 259 9,525 9,801 187 27,904 2,993 106,204 11,222 415 204,928 4,408 428 7,453 21 201,116 25 10,971 1,974 2,215 168,024 117,705 4,918

4,859

4,859

675

675

9,300 2,464 20,880 1, 739

11,300 2,464 22,137 1, 739

55,757

57,253

20,251 70,160 4,559

20,251 70,160 4,559

47,107 18,700 1,746 259 10,200 9,801 187 36,604 5,457 122,930 12,407 415 250,351 4,408 368 7,453 21 237,900 25 10,697 1,974 2,215 188,254 187,865 9,477

47,107 18,700 1, 746 259 10.200 9,801 187 39,204 5,457 128,341 12.961 415 262.181 4,408 428 7,453 21 238,636 25 11.457 1.974 2,215 188,275 187,865 9,477

938,171

955,390

228,650

233,403

1,166,821

1,188, 793

37,520

37,520

486

486

~

£:l

§

>l.. ~

~ ~

d about MNCs and the international banks as being sources. We talked about direct borrowing of governments and others in the market-place. We talked about eo-financing with international agencies, export-import banks, IMF, World Bank, ADB, others. I even tried to get the group to agree that there was such a thing as partnership financing and I am not sure I got very far with that. I got some resistance from the participants from the international banks and perhaps maybe even some others. But what I had in mind was to get them to look towards a partnership with the governments, the multinational corporations, international banks and agencies who could provide guarantees and go directly into the market, or who could provide other areas of innovative financing. It might be a means of making more investment funds available to the A